I notice changes with every visit to Indonesia. The country has experienced strong growth, with an annual GDP growth rate of 4.9-6% in the past 8 years.
The last time I visited in the summer of 2017, I realised about the growing influence of the digital economy. I am not referring to GO-JEK – the Indonesian unicorn startup – and how it has already seamlessly integrated into every Indonesian urbanites’ lives. GO-JEK was already prominent years ago.
What I noticed this time was how entrepreneurs were increasingly incorporating digital tools into their business. I will draw upon the examples of two of my close relatives Ben and Kevin (not their real names) to further illustrate this point. Ben is a relatively successful businessman who runs his decades-old small-to-medium enterprise (SME). Kevin is a retiree who had worked in a British multinational corporation (MNC) for about two decades.
When I visited, I noticed how both of them have increased their digital interaction immensely, using websites such as Booking.com and Airbnb to create rent spaces. Although the revenue from rent spaces is not their primary sources of income, they have invested greatly in creating rent spaces.
Given my relatives’ extensive range of knowledge and experience, they were business-savvy individuals who could spot growth potential in emerging industries. Their actions suggested to me that the digital economy is here, and had finally hit Indonesia.
However, I uncovered an intriguing fact. Another close relative of mine, Bob (not his real name) works as an investment banker in one of Southeast Asia’s biggest banks with decades of experience, specialising in emerging markets. If there was anyone who would be likely to support the growth of the digital economy, I thought it would have been him. But it turns out that he was less than enthusiastic about it, which was baffling for me.
His personal investment decisions are even more intriguing – he is seeking returns by investing in the coal industry instead. I thought he was out of his mind, but he made a compelling argument.
In the US, their President’s attempt to save the coal industry is seen as delusional for a good reason. There exist various alternatives, such as wind, solar and nuclear energy sources, that are more economical and environmentally-friendly. This makes coal a dying industry. “Indonesia has an abundance of natural resources, why don’t you invest in something else given the current level of technology?” was what I said when I voiced my concerns to Bob.
Given Indonesia’s geography – having numerous volcanoes due to its tectonic plate boundaries – geothermal energy is an example of a better alternative that has strong growth potential. I was adamant; surely that had to be a better alternative to coal. But Bob argued, “There surely are better alternatives to invest in. But until I see an increase in skill in Indonesia’s labour force, investing in something with newer technology is a higher risk.”
A country’s economic growth and development is only as good as the resources it has. Countries like Singapore use its skilled labour to power its economy but Indonesia still relies on natural resources to do so. The sobering fact is that Indonesia’s economic model is old and its education system is not keeping up with technological advancements.
The year GO-JEK became a unicorn, 41% of Indonesia’s labour force was in agriculture but they only contributed to 14.4% of the country’s income. Having a majority of the workers in agriculture is not the problem, but productivity is. The figures are concerning because it suggests that agriculture is not being efficiently produced.
From what I saw when I visited farms in West Nusa Tenggara, I can attest that little to no technology is used in agriculture. Most people are more than willing to use technology to more effectively generate income for themselves. But sadly, many citizens in the world’s fourth most populous country do not possess the skills to make use of the available technology.
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There are positive signs nonetheless. Infrastructure developments do show that the country is starting to utilise newer technology. Although the building of the MRT in Jakarta and railways throughout Java are good starting points, this does not deny the fact that our labour force is still lagging behind in terms of skills.
Neighbouring countries – Malaysia, Singapore and Thailand – already have these infrastructures that we are building. Data obtained from the UN supports this. The UN’s education index ranks Indonesia the lowest among its ASEAN neighbours: Singapore, Malaysia, Brunei and Philippines.
There is no denying that technology has boosted the country’s productivity. But I am afraid that until we improve our education system to upskill the population, growth in technology and the digital economy in the country will be hindered and limited to urban centres such as Jakarta. The good news is that the current president Joko Widodo campaigned on improving education and has since taken action in office.
The first step was taken to get more people educated. Now, the next step we need is to improve the quality of education. We need better education so that the country can collectively increase its productive capacity with new technology and consequently exploit the full potential of the digital economy. We can then finally elevate our labour force and unlock investments into new key sectors, instead of relying on old and out-of-fashion ones such as coal (sorry Bob).
Fesa Wibawa is an undergraduate reading Economics, Statistics and Mathematics at Queen Mary University of London. He was born in Jakarta but raised in Singapore and his unique upbringing fostered his passion for ASEAN. He was also president of the QMUL ASEAN society in the 2017/18 academic year.
Disclaimer: All opinions expressed in this article are the author’s own and do not necessarily reflect the views of the ASEAN Economic Forum.